Can good contract drafting prevent disputes?

The Clarity breakfast on 6 June discussed whether good contract drafting can prevent disputes, focusing on commercial contracts and big disputes. Our speaker, Simon Rainey QC, suggested that no drafting can stop a party launching a claim, if the stakes are high enough. And, so long as our law on contract interpretation lets the judge prefer a contract’s context and purpose to its literal meaning, no drafting can guarantee the outcome of a dispute. Only sometimes can you can draft a clause no one can argue with.

But Mr Rainey showed convincingly how good drafting could make it easier to negotiate terms that mean what the drafters expect. He showed us a long and convoluted clause from a short and convoluted contract, part of a 210-page transaction. A judgment was due on 22 June on the effect of a single comma, accidentally moved as the clause was amended and re-amended in negotiations around midnight. It was obvious that a series of shorter sub-clauses would have been easier to work with, increasing the chance of noticing ambiguity and reducing the risk of unintended, unforeseen effects from any purely typographical change the negotiators might make.

Asked how to produce a more manageable first draft contract, those present could only report that most drafts and templates are in traditional style and that both lawyers and trade bodies resist change, preferring to tweak a model known to be defective, rather than start afresh.

We therefore turned to discuss how to train junior lawyers to draft better contracts. Suggestions included:

Short sentences. Simon Rainey favoured this as the one change he would make in any draft.

Paragaphs. Simon Rainey’s second choice: division into sub-clauses.

Tabulation. Break it up and let format support meaning, wherever possible.

Headings. My favourite – improves navigation, even for the most challenging text.

Thought. Understand what you are trying to say. Have the courage to stop and ask someone more senior.

Review. Ask a colleague in another department to read the draft. Leave it 24 hours and then review.

Start small. If changing a whole contract is too much, start by making amendments in the new style and the revised terms may be adopted in other deals.

After the breakfast, Simon Rainey circulated the reference to Lord Sumption’s speech, which he had strongly recommended, about contract interpretation: “A question of taste” (8 May 2017).

Update

On 22 June 2018, the Commercial Court ruled that the comma in question was misplaced by accident and did not change the meaning of the clause. If necessary, the judge would have rectified the contract to remove the comma. The clause as agreed was:

“The Parent shall pay, or procure the payment of, to [the claimant] an amount equal to US$2 per BBL in respect of each of the first 22,500,000 BBLs of Crude Oil won and saved from Block Marine XII following the date of the Facility Agreement, which OpCo is entitled to receive or in respect of which OpCo is entitled to the proceeds, within 10 Business Days of the due date for payment in respect of the relevant BBL of Crude Oil (the “Payment Due Date”) (the “Financing Fee”) provided that, if the Intercreditor Agreement is not executed by the relevant parties by the end of the Intercreditor Negotiation Period, the Borrower may elect to prepay the Facility in full out of the proceeds of the RBL Facility and, following the date of prepayment in full and provided that the Final Discharge Date has occurred, within 10 Business Days following the expiry of the Intercreditor Negotiation Period the Financing Fee shall be reduced to $1.00 per BBL.”

(166 words in one sentence)

During negotiations, the parties:

Added a comma between “Negotiation Period” and “the Financing Fee”;

Added a second comma after “occurred”; then

Removed comma A, leaving only comma B, as in the final text just quoted.

The court held that Comma B was wrongly used and contrary to the sense of the language of the clause.